Thursday, May 29, 2008

Vaclav Klaus, the president of the Czech Republic, is a climate change skeptic. He believes that what we are doing here is advancing a dangerous ideology, essentially a reworking of Soviet communism with high-sounding motivations, and freedom-quashing collectivist impulses.

My own family experienced the same oppressive communist regime in Czechoslovakia as did Klaus, so for what it is worth I have no sympathy for Stalinism. I have no choice but to acknowledge that an increase in collective power over individual power is necessitated by anthropogenic climate forcing as well as other global change issues. The question, really is whether the evidence for the necessity is real. That question should be decided independent of politics, and society's failure to do so cannot be said to speak well of us or our prospects.

Klaus had an interesting speech to the Cato Institute about all this some months ago, which I linked to, wherein he treats environmentalism and climate concerns in particular to distasteful political movements. I don't agree with his points but I think it's worth considering the worldview which finds them plausible.

Here, I'd like to draw attention to what seems to me the core of his argument, in which he quickly brushes by its fundamental weakness:

The book was written by an economist who happens to be in a high political position. I don't deny my basic paradigm, which is the "economic way of thinking", because I consider it an advantage, not a disadvantage. By stressing that, I want to say that the Climate Change Debate in a wider and the only relevant sense should be neither about several tenths of a degree of Fahrenheit or Celsius, about the up or down movements of sea level, about the depths of ice at North and Southern Pole, nor about the variations of carbon dioxide in the atmosphere.

The real debate should be about costs and benefits of alternative human actions, about how to rationally deal with the unknown future, about what kind and size of solidarity with much wealthier future generations is justified, about the size of externalities and their eventual appropriate "internalization", about how much to trust the impersonal functioning of the markets in solving any human problem, including global warming and how much to distrust the very visible hand of very human politicians and their bureaucrats. Some of these questions are touched upon in my book.

I agree in two respects: 1) there is a standard "economic way of thinking" about the problem which concludes it does not rise to a level worthy of a contemporary collective solution and 2) it depends crucially on the presumption that future generations will be "much wealthier".

The second point ties into the whole question of sustainability, neatly sweeping it under a rug by fiat. We observe growth over two centuries, arguably three or even four, therefore growth is considered inevitable and permanent unless actively interfered with. Consequently governing best is governing least. Anything which promotes growth is natural and anything that restrains growth isn't....

I don't buy it. The common outcome of exponential growth processes in nature is a logistic curve, asymptoting to a constant, non-growth pattern. Slightly more complex scenarios are asymptoting to wild oscillations, and crashing. Indefinite growth is not sustained in the real world.

Have we reached the point of inflection in the logistic curve? There are so many arguments that this is the case that it is surely pointless to recount them all. Presumably you have spent some time in the last week being concerned by energy prices, to pick an obvious example.

So the crucial idea in the economists' argument, that future generations will be wealthier ("much wealthier") than the present generation, is in no way certain. The very problems we are discussing are the ones that are most likely to cause that pattern to fail.

Conventional economic thinking as defined by a prominent economist, then, systematically ignores sustainability as an issue. A keystone of the argument crumbles, and the whole approach that economists from Stern to Lomborg advocate falls apart.

Economists usually think in terms of discounting the value of goods in the future. However the recent contango of oil futures reminds us that sometimes, goods and serivices are more valuable in the future.

GHG reductions are one such good. It is less expensive to reduce GHG emissions today, then to wait until we are up to our chins in seawater.

You confess to know nothing about comparative advantage, therefore nothing about this post should come as a surprise.

And no one here seems to get my oft repeated point about the difference in value and resources.

You really are Marxists, not in the invoking nasties sense, but in the true sense that you believe the value of a boot verses a red high heeled pump is something to be measured scientifically.

Michael, you've intentionally kept yourself as ignorant as possible about the nature of economic growth, so why bother discussing it as a topic? Because you haven't bothered to understand it, you assume it's all voodoo to everyone else as well, which is insulting to those who practice it as a science.

You don't like being on the receiving end of that accusation- but you never hesitate to sling it yourself.

I have to assume that *all* sciences are just reading goat entrails, since there seems to be no shortage of people making that accusation against each and every science.

"no one here seems to get my oft repeated point about the difference in value and resources."

That doesn't even parse for me. Could you try to make this point clearly and succinctly please? Then I can decide whether I agree, disagree, or find it news to me and need to regroup. I simply have no idea what you mean here.

Again:

"about the nature of economic growth" ... "those who practice it as a science." Don't understand.

A copy of GTA4 has more value than a stream of random data, even though they both cost the same amount of energy to copy. Is this a fair example of the difference between value and resource that you're talking about?

What does this have to do with the argument that assuming future generations will be more wealthy is just that, an assumption?

I have posted in several threads me version, which is 400 pages of Skakespeare vs. 400 pages of John Grisham or even random text.

You cannot (at least intuitively) understand value by scientific rules of conservation. You can't look at the amount of labor, or time, or cost of pages, or printing to calculate the difference in value of two nearly identical (in form) books.

It would take me quite a while to explain the whole point here, but I've been trying to show that scientific laws of conservation work- but following them for too long gives one tunnel vision. I don't think those who are debating science vs. econ are grasping the nature of value, and therefore they can never open the door to all its implications.

Michael and others are obsessed with limitation of resources. But things we have considered resources in the past we no longer care about. Other things we now consider resources were once junk. And other things- like Gold, have bizarre relationships between value and utility. (Gold certainly has some value in applications, but this inadequately explains its perceived value).

MT: I don't know how better to explain it. You keep your head in the sand (re: econ) but then want to keep it as a major sub-topic of your writing.

You sound exactly like a 12 year old Christian who is repeating the I.D. arguments he has heard from adults about evolution. Replace Evolution with Econ and there you are. You talk about a whole field, and its practitioners dismissively. Just as I.D.'ers wave off evolution- a rich, wide spectrum, and data filled field(s) of research. Certainly a science(s).

Vaclav's second paragraph, as quoted by MT comes across to me as blindingly clear and rational. You may consider it wrong in the final analysis- but I think if you don't "get it", feel it in your bones, there is something fundamentally inadequate about arguing econ topics here until you read it over and over until it clicks.

MT: Your treatment of econ is as vague and dismissive as someone waving off astrology or voodoo. It would come as quite a surprise to the many practitioners who have won nobel prizes, spent countless hours conducting experiments, field research observing people's behavior, and otherwise amassing and analysing data. I think if you want to continue to criticize it, you should do some minimum effort to understand it.

MT and AC:Re future generations. This is another example where I think the (perfectly valid) constraints of science can overcome a person and make them see everything through those limited glasses. Growth does not imply contiued growth in any one thing. Growth, paradoxically, can mean using less of resources over time. To say that growth is asymptotic- for a counter argument, just look at the biomass on the planet. You couldn't accurately say that it has accumulated over time- but it certainly has gained and changed in many ways. But this requires different types of measures, sometimes measuring *concepts* and abstract descriptions, not actualy physical widgets. The evolutionary process, and the power of life has morphed, developed, grown in ways that could not have been predicted exactly at any given point.

Economic growth is the same way. It takes some amount of imagination (although I hesitate to get too new-agey) and widening of scope to understand it.

On that some note- although it isn't mentioned specifically, we have touched on a common critique. Pro-Econ folks commonly rely on future technology, while econ-sceptics are (rightfully) well, sceptical of future technology.

Is anyone seriously making the argument that "everythings been invented"? Even if I don't know what will constitute our discussions of growth in 5 years, I have an extremely reasonably basis for believing there will be new technology. In finance, any questions like this can be experimented on by moving money back and forward through time.

Similarly, I posit that you can "place" yourself at any five year period before the polio vaccine, the internet, the MRI, satellites, cell phones, (or even social inventions) - the list is endless. From any point in history one could say "it's all been done" and even those who said "there's more to come" would be right, even if they didn't know the exact form. We still don't have Jetson's cars. Our predictions (Jetson's cars) are often wrong because we are trying to extrapolate our needs from our current situation. Real growth and technology is much more organic, and non-intuitive than that.

My favorite humorous reminder of that is the scientists of 1900 extrapolating into the future and thinking "Where are we going to put all the horseshit".

I am willing to have a conversation with you but you have to say something, not just get mad at me because I cannot read your mind. Sorry. I can;t do that.

I'm interested in economics, but I am not sure whether I am interested in your view of it.

Maybe you represent mainstream economics and maybe not. Maybe you represent a sensible if nonstandard viewpoint and maybe not. As long as I am unconvinced of either, I will not follow up on your reading advice. You will have to make your own points in a coherent fashion if you want to promote your way of thinking.

You make some noise about "difference in value and resources" which I don't even recognnize as English, never mind sense.

MT: I don't see how you can say this seriously without being intentionally obtuse.

I've asked you repeatedly, a question which you have not yet answered.

To use AC's newer version:Michael, please explain to me the difference in value between the game "Grand Theft Auto 4" and an equal number of lines of random code.

Now, the easiest explanation is that a lot of thought and work went into GTA4, but did not in the random code. However, that does not account for two games that get published- each with hours of effort and planning- when one sells for $50, and the other is relegated to the discount bin.

How can a combat boot take twice as long, and twice the material to produce, and yet be half the value of a fashionable pair of women's shoes?

Understanding what value is, is essential to understanding economics. Now that we're at the head of this debate, you make it increasingly clear that you do not WANT to learn.

Every time we get this near to articulating the difference, you begin to change the subject, or engage in more personal information, or bring up completely unrelated topics.

You have no interest in econ, yet you persist in discussing it's shortcomings.

Your lack of understanding certainly cannot be attributed to your intelligence, which is certainly well capable. Neither is it a lack of material that can be understood. Many other people have been able to grasp what you find unfathomable.

Just like a tantrum throwing shoolchild, holding your ears and yelling "lalalala"- your only impediment to learning is your determined will not to do so.

Steven-Setting aside the question of whether growth is 'good', surely you agree that economic growth is not inevitable in a real system?

Even highly idealised systems exhibit bifurcations, crashes, phase transitions - why would we expect not to see such behaviour in economic systems?

So the increased wealth of future generations is still an assumption, no? Technological innovation is not predictable, and there are always real physical limits when it comes to satisfying our base needs of food, transport and shelter.

Ah, "difference in value" is apparently a noun phrase, and "resources" is a noun, and you are trying to come up with some relationship between them. Right?

This was not obvious to me. I think it was just a case of unclear writing. Perhaps "difference in value" is a phrase used a lot in one of the books you have read. Forgive me.

Typically one speaks of a comparison between two things when one refers to a difference. So I read it as "difference between 1) value and 2) resources". You can understand my confusion, I hope.

If you are asking me the difference in value between bad code and good code, it's pretty simple. The good code is useful and the bad code is not.

There is some sense in which the "value" of the code is the equivalent of the license fee one pays to use it. If that has some relationship to the point you are making, software is a strikingly poor example! (I will choose Python over proprietary languages in most cases, for instance.)

Let me stipulate, however, that I will pay different amounts for different things, and the amount I am willing to pay must be greater than the value of the resources that producing each item uses, but beyond that may vary considerably. Is that what you are fishing for? Fine, conceded. And? Or is it something else?

And what does that have to do with what I claim is Klaus's error?

You really need to formulate your positions and not make me guess them if you want to continue the conversation. I am trying to see your point of view but I am tired of guessing at it.

Of course, if you take what Robert Solow has to say on the general subject too literally - "If it is very easy to substitute other factors for natural resources, then there is, in principle, no problem. The world can, in effect, get along without natural resources." - then it's all about "value", not resources, and we can simply liquidate our resources and replace with human-made capital and ingenuity! Sigh...

Steven, you appear to have a strong tropism toward being judgmental, but IMO your judgement - from what I have seen in your comments here, where you infer Michael's motives and M.O. - is poor. (which leads me to question how credible your comments are likely to be on other matters)

David B. Benson said... This seems a good place/time to remind everyone of Jared Diamond's "Collapse". There is another, more scholarly, historical treatment of this same issue, but I disremember the author/title...

Keep this in mind though, technology, innovation, and growth aren't things that randomly fall from trees. They are the work of human beings. And I think we are on a 10,000 year (?- or much more) trend of progress and growth.

I think that continued growth is much MORE likely now, instead of less.

Taking your second paragraph- as an example, the stock market has minor and major ups and downs. But there is no 5 year period that the average isn't higher than before. Go to any finance page and look at the major indexes- put in "all dates" and look at the graph.

3rd para- while the exact timing is uncertain, and wealth and tech are assumptions- some assumptions are much stronger than others. Are you merely asking for clarification? I doubt you really want to make the argument that it's all been done, right?

While there are physical limits, if no one knows what they are, and prices are manageable, they are of limited use. Everything is finite. The sun will one day burn out. But we don't live based on that information. Our food supply is overwhelmingly an act of human creation. If we were counting on the bounty of nature, we'd all be starving to death. When there is demand, goods will be produced and brought to market.

As I've mentioned before, resources we might have once predicted we'd run out of, we no longer use at all. Increasingly, economies are based on *value* that represents less and less resources. MP3's and software are great examples.

History contains some of the empirical evidence that believers in economic orthodoxies should be using to test their beliefs.

A 10,000 year trajectory of progress is of little consequence to people experiencing a 500 year glitch. You seem unaware of the historical instances of decline of great civilizations. Joel Cohen's _How Many People Can the Earth Support_ has a remarkable chart of the population of Egypt which has peaked three times and crashed twice.

Nobody is a greater enthusiast for iPods and such than myself but no number of iPods is worth a goddamn when you are hungry or thirsty. The idea that we are not at nature's mercy is an abstraction that is only of use when it we don't find ourselves in times that test it.

The collapse of Easter Island was very much like building more iPods when the actual real capacities of the world to feed the civilization were being strained. In the end there was plenty of demand for food and no resources left to produce it.

MT: What I find really interesting is how a smart guy like yourself can have such a hard time reading me. Without bragging, take me at my word when I say I've been rewarded through several avenues [at work, in class, financially, competitively] at several levels of scale for my writing. I think I know how to communicate. Granted- blog comments are usually not essay material. I'm sure the spelling and grammar leaves plenty to be desired.

I think you are making too much of it. If AC, Tidal, David Duff and others can get it and respond clearly, I don't know that the material is so difficult. Blog-ments aren't my finest... but they're not that tough.

When I said "difference in value and resouces" I mean *There is a difference in VALUE and RESOURCES. VALUE is a measure of something, and RESOURCES are specific objects (mostly).

There is a difference between inches and a table. I can describe a table in inches, but inches do not a table make. This may seem irrelevant to you, but it's very important to understanding why scientific language of resources and economic language of value are different- and I don't think necessarily incompatible.

At any rate, the key issue is that to have any meaningful dialogue, some basic vocablary and concepts must be agreed upon.

Interestingly, and somewhat humorously, I have no particular beef with science, and you don't have to pester me to accept principles or language of science. (Barring usage of overly technical terms- which isn't an issue of belief, just familiarity with the vocabulary)

There is no way I will be able to make any point with you without finding some on-ramp, merging us onto the same lane of communication.

Imagine if we were in a public panel discussion. We could spend a little time getting on the same page. I don't think you want to do that.

So at every tiny baby step where I've tried to identify beginning principles, find the start of your economic objections, and introduce necessary terms- you have been hyper-obstinant. Yuo are obviously a very intelligent guy- I have to assume willpower, not incompetence.

I can only imagine starting a blog on technology in general, and then spending about 25% or more of my entries criticizing the Python language and the non-scientific voodoo practicioners who use it. Except- at no point would I actually bother to learn anything about Python.

That's Ok. It's your forum, and you can quickly have more of Anna patting you on the back and Dano amusing himself with his cleverness. You could and did wait me out. I'm back in class and I'll probably only have time to check in very occasionally and see what's up.

I stumbled in; and I stuck around because I got the impression you had a sincere interest in learning more about economics. I don't think that is at all the case. All the evidence seems to be that you only want to throw mudpies at econ.

I would like to contribute something beyond the rather simpleminded nuts and bolts of my day job toward getting us collectively through the foreseeable future without a crash.

Thinking about what economists think about is thus inescapable. Thinking about whether they know how to think about those things is the first step. There is evidence aplenty that they don't.

While I believe Lomborg when he claims to represent economic thinking, I am confident that his conclusions are wrong. This leaves me in a very skeptical stance toward the whole business, to be sure. I am trying to figure out where he went wrong.

Maybe we should try to get a PhD economist with some teaching experience involved here rather than trying to debate by proxy.

Anyway, good luck in your studies.

I strongly recommend the undergraduate calculus and physics sequences, not so much as a direct balance to the stuff the economists are likely to feed you but as a source for alternative quantitative models of how to think about the world. It may be useful to see how different the flavor of economics is from the flavor of other sciences, and how idiosyncratic the mathematics.

Steven says: "Taking your second paragraph- as an example, the stock market has minor and major ups and downs. But there is no 5 year period that the average isn't higher than before. Go to any finance page and look at the major indexes- put in "all dates" and look at the graph."

Absolute nonsense... total fiction. There are MANY such periods such as you describe... particularly if you adjust for inflation... Just off the top of my head... 1973 to 1977 inclusive, S&P 500... down, nominally, ~ 20%... (although, admittedly, ex of dividends... but also BEFORE inflation...)

Regardless, is your point that the performance of the US stock market over various 5 year periods c. 1850-2008 is a really good predictor for, say, long-term cod stocks???

David B. Benson said... According to conventional academic economics, it is posssible to earn interest, risk-free, forever: Derivation Of Black-Scholes Model

hehehehe... it's interesting how often finance and economics are excited to borrow - or "relax" - physical models as it suits them! Black-Scholes, fwiw and iirc, was heavily indebted to insights and models based on Brownian motion...